AT&T's Ed Whitacre built the runt of the Baby Bells into the largest telecom company in the world. His hunger for takeovers is unsated.

On 4,000 sun-baked acres of mesquite, blackbrush and cactus 60 miles south of San Antonio, Tex., AT&T
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), ancient, ugly and creaky, to clear acres of thorny thicket and scrub brush. "It still gets the job done," he says protectively.

Whitacre takes a similar skinflint's approach as the new AT&T embarks on a digital video revolution. In an audacious bid for new business AT&T aims to sell a panoply of video programming to customers of its phone services. It is building an all-Internet network, encompassing 40,000 miles of newly laid fiber-optic lines--on the cheap.

AT&T's U.S. archrival, Verizon
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A telco gone Hollywood, AT&T has signed distribution deals with more than 300 cable channels. It has won approval to offer video in six states plus ten other markets. It rolled out its new video service in hometown San Antonio in June and, in some neighborhoods, snagged a surprising 30% of homes; it just lit it up in Houston. It hopes to be available to 1.9 million homes in 15 markets as the new year unfolds. Video revenue, now a trickle at AT&T, could in a few years hit $4 billion, including $2 billion in ad sales. "There's not much growth in our business without a new product," Whitacre says. "Video probably is that product."

AT&T's video ambitions will intensify if Whitacre can close the latest in a string of big takeovers: the $80 billion buyout of BellSouth
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), the last Bell standing. He needs only the blessing of one last holdout, the FCC, which could rule within weeks. "It's a big, big milestone," he says, vowing to push broadband services and digital video "much deeper into the American public."

Since becoming chief executive in 1990, Whitacre has pulled off 13 deals with a combined price tag of $285 billion, including assumed debt (if the BellSouth deal goes through). He started this buying spree as chief executive of the former Southwestern Bell, the unaccountably proud runt of the seven Baby Bells spun off from the old AT&T monopoly that the government busted up in 1984. He has built the regional utility into the renewed and renamed AT&T Inc., the largest telecom company in the world, 28% bigger (in revenue) than second-place Nippon Telegraph & Telephone.

Suddenly Wall Street--harshly negative on telecom stocks since the markets crashed in 2000--is impressed. AT&T's stock is up 44% in the past year. Whitacre says it should be up even more. "Shoot, even now it's way behind. It oughta be up 200%!" he says. "This is a stock that sells way higher at some point."

That surge and other strong metrics--its sales grew 46% and per-share earnings 61% in 12 months; its shares more than doubled the return of Verizon's--combine to make AT&T our Company of the Year for 2006. It is a bit of sweet vindication for Whitacre, who was pilloried in the press for raking in $135 million in a six-year period in which the company's stock price fell 48%.

"You beat up on me a lot. Everyone did," Whitacre says. FORBES gave his board a grade of "D" in 2003, and in mid-2005 we put him on a "hit list": "Why well-paid, underperforming execs should be worried." (Five of the seven chief executives on that list no longer hold their jobs.) He still smarts from a piece in the New York Times Magazine that ran five years ago. The writer said Whitacre exemplified a stock-options system "shot through with hypocrisy" and "gradual corruption." "You know him?" Whitacre asks. "You tell him he's a sorry bastard." He grins.

The new AT&T, with BellSouth in hand, will possess a sweep and scale that few imagined when Whitacre began. It will serve 90 million accounts. It will have 68 million phone lines in 22 states, 12 million high-speed Internet access users and 59 million customers nationwide for Cingular (soon to be renamed AT&T). It will employ 300,000 people and have 1.8 million shareholders. It will be one of the nation's largest property owners, with 2,300 stores and a fleet of 35,000 trucks, each one a moving billboard. This rebuilt juggernaut will have annual revenue in 2007 near $110 billion and net income of $10 billion.

Wall Street worries that ever more copper-wire customers will quit and switch to cellular, with its expensive transmission towers and subsidized handsets. That may be overblown. This year the new AT&T will generate enough cash flow from operations (net income plus depreciation) to spend $16 billion on gear and capital projects, pay $5 billion in dividends and buy back $7 billion of its own stock. Whitacre vows that earnings per share will grow 10% or better for three years straight.

That will require Whitacre to mine new growth from all he has assembled--even as he mulls pursuing one last big deal. He is 65 and has 16 months left on his contract before driving his half-ton pickup truck off into the sunset on his arid, scrubby ranch in southern Texas. His likely heir, Chief Operating Officer Randall Stephenson, 46, is in place .

AT&T, Verizon and the cable giants thus finally are delivering on a vision first conjured up in the early 1990s, when cable and telecom were bent on breaking into each other's markets and consumers were wooed with promises of 500 channels. "It was an idea before its time then," says Whitacre.

Now its time has come, aided by the rise of the Internet and wireless tech and the plunging costs of transmission and storage. "We're in transport," Whitacre says simply, "and if you're good enough at it, and ubiquitous enough, you can excel at it."

Maybe, but his path is rutted with a passel of imposing obstacles. In six years AT&T's access lines are down 23% to 47 million (though revenues grow because it owns the largest wireless carrier and the largest broadband-access business). Cable rivals have raided 8.5 million homes for new phone service. And AT&T is in distribution, a commodity business under unrelenting cost pressure; it owns scant content, a higher-margin product that retains value even amidst digital upheaval. Moreover, a fight over network regulation--known by the tag "net neutrality"--has broken out. Google
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Similar hurdles have hampered this telco in the past. For years Wall Street had been downright hostile to the acquisitive ambitions of Chairman Whitacre. Its shareholders endured six years of disinterest and disdain in the markets, which disliked the industry for myriad maladies--overcapacity, crashing prices, onerous regulation, takeover turmoil, imperiled monopolies and a decline in local phone lines for the first time since phone service began a century ago.